Federal Court Confirms Foreign Arbitral Award Totaling $1.23 Billion

Federal Court Confirms Foreign Arbitral Award against a State-Owned Foreign Company

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Overview


A federal court in Seattle confirmed a foreign arbitral award, totaling approximately $1.23 billion, stemming from an international arbitration decision in a dispute between two Indian companies over a satellite lease agreement. The court concluded that it had jurisdiction over the proceeding even though one of the companies was owned by the Indian government, and each party had suits pending in India’s court system about the validity of the award.

In Depth


Background

In January 2005, Devas Multimedia Private Ltd. (“Devas”), a corporation formed under the laws of the Republic of India, and Antrix Corp. Ltd. (“Antrix”), a corporation wholly owned by the Government of India, entered into an agreement for the lease of Space Segment Capacity on ISRO/Antrix S-Band Spacecraft (the “Agreement”). Under the Agreement, Antrix agreed to build, launch and operate two satellites to make 70 MHz of S-band spectrum available to Devas. The Agreement contained a binding arbitration clause that required the parties to submit disputes to a panel of three arbitrators (one to be appointed by each party and the final arbitrator to be appointed by the arbitrators selected by each party). The Agreement also provided that arbitration proceedings would be held under the rules and procedures of the International Chamber of Commerce (ICC) or United Nations Commission on International Trade Law (UNCITRAL), and that any decision or award would be final and binding.

In February 2011, Devas claimed that Antrix repudiated its obligations under the Agreement, and Devas commenced arbitration proceedings in accordance with ICC’s rules. Antrix, however, refused to participate in the ICC arbitration and refused to nominate an arbitrator. Instead, it invoked the rules of UNCITRAL and petitioned the Supreme Court of India to order the parties to proceed under UNCITRAL’s rules and procedures. The Supreme Court of India denied that request, as Devas had already commenced the ICC proceedings.

In September 2015, following a hearing in New Delhi, the three-member ICC panel issued a final arbitral award, concluding that Antrix wrongfully repudiated the Agreement and awarded Devas $562.5 million, plus interest, in damages. Devas filed an action in a local court in New Delhi to enforce the arbitral award, and Antrix filed a petition to set aside the award in a different court in Bangalore. As of the US federal district order’s date, Antrix and Devas continue to litigate the issue of which court has jurisdiction to hear the matter.

But in September 2018, Devas filed a petition with the US District Court for the Western District of Washington to confirm the arbitral award. Antrix moved to dismiss, arguing that the court did not have personal jurisdiction over Antrix. The federal district court concluded that Antrix was subject to the court’s jurisdiction under 28 USC § 1330(b), declined to dismiss the case and entered a one-year stay. On September 17, 2020, the federal district court lifted the stay following an inquiry into the factors identified in Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310 (2d Cir. 1998), giving substantial weight to the prolonged nature of the case and its indeterminate resolution. On October 27, 2020, it confirmed the arbitral award.

Discussion

The federal district court confirmed the arbitral award, finding that: (1) the court had personal jurisdiction over Antrix, a corporation wholly owned by the Government of India; and (2) the Convention on the Recognition and Enforcement of Foreign Awards (“New York Convention”), the governing body of law for confirmation of foreign arbitration awards, did not preclude the court from confirming the arbitral award.

The Court Found It Had Personal Jurisdiction over Antrix

The court concluded that it had jurisdiction over the proceeding under 9 USC § 203 and the Foreign Sovereign Immunities Act (FSIA) (28 USC § 1330). The court acknowledged that foreign states are generally “immune from the jurisdiction of the courts of the United States;” however, there is an exception when a party seeks to confirm an arbitral award against the foreign state that is “governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.” (28 USC §§ 1604, 1605(a)(6).) In its motion to dismiss, Antrix acknowledged the court’s statutory basis for personal jurisdiction under 28 USC § 1330(b) but argued that the Due Process Clause of the United States Constitution precluded the court’s assertion of personal jurisdiction over it. The court ruled that the Due Process Clause did not apply to Antrix because it is wholly owned and controlled by a foreign state and therefore it is not entitled to due process protections. The court noted that even if Antrix was entitled to due process protections, due process had been satisfied under the minimum contacts test based on several meetings that Antrix’s representatives had in the United States that led to the establishment of Devas and the Agreement.

The New York Convention Did Not Preclude Confirmation of the Arbitral Award

The New York Convention, specifically Article V, lists seven grounds for a court to refuse to confirm an award. Antrix argued that the court should refuse to confirm the award on two of the seven enumerated grounds: (1) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties (Article V(1)(d)); and (2) the recognition or enforcement of the award would be contrary to the public policy of that country (Article V(2)(b)).

The district court rejected both of these objections. In support of its argument on the first ground, Antrix stated that the award was not made by arbitrators appointed in accordance with the Agreement because the ICC appointed an arbitrator on behalf of Antrix. The court rejected this argument because it found that Antrix’s repeated refusal to appoint an arbitrator essentially operated as a forfeiture of its right to do so and that the ICC correctly made an appointment in accordance with the ICC’s rules and the Agreement itself.

Likewise, the court was unpersuaded by Antrix’s argument for the court to refuse to confirm the award on the second ground. Antrix argued that two public policies justify the Court’s refusal to confirm the award: (1) a policy of respect for the sovereignty of other nations and respect for foreign arbitral awards; and (2) a policy against corruption. The court concluded that confirming this arbitral award would not violate India’s sovereignty because the award provided for purely monetary damages that were not punitive. Similarly, the court concluded that the Agreement was not a product of corruption as Antrix failed to put forward any evidence indicating corruption. Moreover, the court noted the emphatic federal policy in favor of arbitral dispute resolution, especially in the context of international commerce, even though actions against foreign states raise sensitive foreign relations issues in the United States.

McDermott Insight

The district court’s opinion in Devas v. Antrix highlights the strong federal policy in favor of enforcing arbitral awards. While courts routinely enforce arbitral awards arising from a dispute between two foreign companies, Devas confirms the federal policy in favor of enforcement can apply even against foreign state-backed companies. The decision was also notable because the court confirmed the arbitral award against a foreign state-backed company even though the company was litigating the enforcement of the award in its own country’s court system.